Argentina is shaping up to be the next venue for a shale revolution, American style, and again it is the juniors with acreage parked right next to major explorers who are set to turn the heads of investors.
Argentina is home to 27 billion barrels of recoverable oil and 802 trillion cubic feet of natural gas, primarily in and around multiple prolific shale basins in the central Neuquen province, including the prized Vaca Muerta shale. Here, Canada’s Madalena Energy (TSXV: MVN; OTC:MDLNF)-trading at less than 3 cents per barrel, is sitting on an astounding 3 billion boe of net recoverable resources and drilling in four strategic resource plays this year.
Madalena’s prime acreage is right in the middle of massive unconventional exploration operations being conducted by some of the biggest companies in the world.
Much as the shale revolution was led by junior players in the US, in Argentina, too, Madalena grabbed up prime acreage before the bigger players swooped in. Today, this Canadian junior is one of the only juniors left on the scene and it will be a major beneficiary of supermajor drilling operations.
Madalena’s acreage continues to rise in value as the industry quickly de-risks what is becoming the next big unconventional shale play worldwide.
Expectations have continued to soar with a major discovery in August by Argentina’s state-owned YPF in the Agrio shale. For Madalena, with a 90% working interest in the Curamheule block-near the YPF discovery-this has been a particularly significant boost. Curamheule is estimated to hold over 1.5 billion barrels of recoverable oil and natural gas liquids. Madalena has put together ambitious plans to drill this acreage this year, and uniquely in these dire oil times, it is fully funded to do so.
Simultaneously, ExxonMobil (NYSE: XOM) has made two major discoveries on its Vaca Muerta acreage, with the second discovery only 20 kilometers from the first.
Also in the Vaca Muerta, joint ventures between Chevron (NYSE: CVX) and YPF just offset to Madalena’s Corion Amargo block, are seeing investments in the order of $1.2 billion and $1.6 billion, underscoring the incredible position that such a small company has found itself in.
At their Loma Campana development, YPF and Chevron (NYSE: CVX) have 200 wells now in production from the Vaca Muerta shale and are driving ahead investing significant dollars in Argentina’s unconventional shale plays with plans to drill an additional 160 wells (120 vertical and 40 horizontals) in 2015 in this area alone. This, too, sits offset to Madalena’s acreage.
At the same time, we’re looking at a brilliant balance sheet. Not only does Madalena have no debt, but its market cap is just above a $100 million, yet the company sits on assets which could prove to be worth 4-10 times this value.
Madalena President & CEO Kevin Shaw, formerly of ExxonMobil, has strategically positioned the company in 2014 to unlock its unique set of unconventional assets in Argentina by first establishing a sustainable critical mass production base in Argentina which can now be used to fund its strategic drilling on land that continues to increase in value.
Land is now attracting between $5,000 and $15,000 per acre in oil-rich areas of the Vaca Muerta shale and emerging Agrio shale plays, and as much as $5,000 in natural gas-rich locations. Madalena’s acreage in the Vaca Muerta alone could prove to be worth as much as USD$600 million to $1 billion. Recent new discoveries will further raise this value.
Nearly every supermajor is eyeing the enticing Vaca Muerta, despite the plunge in global oil prices. In addition to ExxonMobil and Chevron, Royal Dutch Shell (NYSE: RDS.A), France’s Total SA (NYSE: TOT) and Petronas (PNAGF/PTG:Kuala Lumpur) have committed more than $1 billion to the Vaca Muerta in January alone. The oil-hungry Chinese are also said to be eyeing sweet-spot acreage here through Sinopec (NYSE: SNP).
The best is yet to come for Madalena, which plans to drill a series of high impact wells across four unconventional resource plays this year, seeking to unlock its nearly 3 billion boe of net recoverable resources in Argentina. If it strikes oil in just one, its share price will double in the next 12 months.
Trading at less than 3 cents a recoverable resource barrel on its shale assets alone, Madalena is a highly attractive takeover target in the current oil price atmosphere. In the meantime, it’s making history and forging the next shale revolution with its plans to tap the Vaca Muerta-alone about three times the size of Texas’ Eagle Ford–and Agrio alongside the Loma Montosa oil resource play and the Montney-like Mulichinco.
By James Burgess of Oilprice.com
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